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I have a plan with three owners and one other HCE. If I use my top paid group (20% of the employees), I would only need two people. When I rank based on comp, it is owner1, owner2, HCE, owner3. Who should be in the top paid group for testing purposes?

Given the ERISA regulations associated with maintaining a qualified retirement plan, I highly recommend that you have a qualified QPA from a third party administration firm performing the testing for you or at the very least advising you on the classification of the employees for testing purposes. As an example, an employee that is related to an owner may be classified as an HCE regardless of their salary or there may be a group of employees that have been excluded in the plan document. There are several factors that need to be considered when conducting the ADP (actual deferral percentage of HCE compared to non-HCE), ACP (actual contribution percentage – matching contribution test) and top heavy testing. Engaging an experienced professional will save you time and money in the long run. If you need assistance in connecting with a third party administration firm please contact me at 415-345-8185 or email peter@karpcapital.com.

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